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Govt eyeing two PSU mergers, to meet the target

To meet Rs 80,000 cr target, at least two mergers are in the offing and the process may start with NTPC acquiring SJVN, said sources

Govt eyeing two PSU mergers, to meet the target
Govt eyeing two PSU mergers, to meet the target

New Delhi: To meet its divestment target, the government is looking to carry out mergers and acquisitions among public sector undertakings (PSUs) in the power sector. According to sources, at least two mergers are in the offing.

A government official said that the process may start with power generation company NTPC taking over hydropower firm SJVN Limited. The government holds 63.79 percent stake in NTPC Limited. He said that some blue-chip companies have shown interest in acquiring smaller ones in cases where synergies exist and added that there is a feeling that such mergers will help the bigger CPSEs achieve efficiencies of scale if their strengths are combined.
An official with NTPC, however, said that the company may face hurdles in going ahead with the deal as Himachal Pradesh government holds 26.85 percent in the firm.

An official with NTPC, however, said that the company may face hurdles in going ahead with the deal as Himachal Pradesh government holds 26.85 percent in the firm. The other merger could take place between power sector financing firms Power Finance Corporation (PFC) and Rural Electrification Corporation Limited (REC). The government owns 65.64 percent stake in PFC and 57.99 percent in REC. If the government chooses to go ahead with the process in this financial year, it will be able to raise Rs 21,000 crore at existing market prices.

The government has so far managed to raise Rs 10,028 crore out of its target of Rs 80,000 crore in this fiscal. The other CPSEs where the possibility of mergers and acquisitions are being explored include, NHPC Ltd, North Eastern Electric Power Corporation Ltd, and Power Grid Corporation of India Ltd. The news comes a day after the Department of Investment and Public Asset Management (DIPAM) floated an expression of interest for engagement of advisors for merger and acquisition in the power sector on October 30. It said that it is looking to engage one adviser in the process of (up to) two M&A in the energy sector.

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The practice of going about disinvestment by making one CPSE acquire or buy stakes in another has come under severe criticism from experts within the public sector. “If the government is looking to meet its deficit targets by forcing these firms to buy its stake in other companies, in the long run it may impact the profitability of these firms, which should be a larger concern,” said MP Shorawala, a former independent director with Container Corporation of India.

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